CMC Discussed Several Legislative and Regulatory Topics on our Members-only Policy Call

Earlier this week, on CMC’s members-only policy call, CMC staff and members discussed various legislative and regulatory topics, including joint initiatives taken by the SEC and CFTC on international swaps regulations, and conversations that the CMC is having with the CFTC on bona-fide hedging. Bona-fide hedging was the topic that members were most interested in discussing in greater detail.


CFTC Updates

CMC has long sought, through communications with the CFTC and numerous discussions on Capitol Hill, to encourage the CFTC to better coordinate its rulemaking with global commodities and derivatives regulators, so as to not unduly harm American businesses, job creation, capital formation and market liquidity. It is heartening to note that the CFTC has acknowledged our concerns by planning this meeting.

CFTC and SEC Staffs to Host Public Roundtable to Discuss International Issues relating to the Implementation of Title VII of the Dodd-Frank Act
The staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) will hold a joint public roundtable on August 1, 2011, from 9:00 am to 4:00 pm, to discuss international issues related to the implementation of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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In Case You Missed It…5 Articles To Read

To mark the first anniversary of Dodd-Frank, here are some key insights.

1.   Atlas Shrugged: Will Regulators? — Funding SEC and CFTC

Meanwhile, SEC and CFTC officials have held more than 1,300 meetings with outside firms and individuals to discuss the Dodd-Frank law since it was passed, according to a tally by law firm Davis Polk & Wardwell LLP. So far, the SEC has missed more than three-quarters of its Dodd-Frank rule-making deadlines; the CFTC has missed 88% of its deadlines, the law firm said.Geithner steps to the defense of Dodd-Frank

Two and a half years ago, with our country on the edge of a second Great Depression, we met with the president in the White House to discuss whether to move in those first months of his administration to legislate fundamental reform of the financial system—or wait until we had put the crisis behind us.

2.   A comprehensive summary of Dodd-Frank

3.   CMC joined with our ag colleagues to push for retention of key Census Bureau reports.

          Agricultural Groups Scramble to Save Critical Reports

CHICAGO (Dow Jones)–Producers of cotton, wheat flour and livestock feed are searching for ways to avoid losing Census Bureau reports critical to their industries that are slated to be discontinued due to budget cuts.

A coalition of agricultural trade associations is slated to meet Wednesday with the top economist of the U.S Department of Agriculture to discuss attempts to save the reports issued by the Census Bureau. Time is running out to find a solution, as some of the reports will be stopped after next month.

4.   CMC’s work on swap rules related to portfolio hedging with the Energy Working, jointly known as the Commercial Alliance, was highlighted in a recent Platts article:  Energy group wants CFTC to take a larger view for swaps rules.

According to the group’s letter, basing new rules on each swap transaction, rather than on a company’s overall portfolio, is “flawed” and would “degrade risk management best practices in swap markets.” For example, the group highlighted a utility company whose hedging portfolio may be long for physical generation, but short physical load obligations. The group argued that the CFTC should view the overall portfolio of hedging as the basis for determining if the company’s hedging is speculative or a legitimate hedging strategy, rather than making this determination based on an individual swap.

“If a transaction-by-transaction approach is taken to its logical end, the utility would be required to put on an individual hedge for each of its customer accounts, of which there might be millions,” the group wrote.

5.   See Brian Scheid’s Platts article below.

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CFTC: Remarks to the Institute of International Bankers Annual Washington Conference (Speech by Commissioner Jill Sommers)

CFTC Commissioner Jill Sommers delivered a speech at the Institute of International Bankers (IIB) meeting in Washington, DC recently. While emphasizing the need for global regulatory coordination, mitigating systemic risk, preventing fraud and improving market transparency, she also cautioned the CFTC against assuming extraterritorial international jurisdiction. Additionally, she highlighted the need for a robust cost-benefit analysis in rulemaking, which she says the CFTC isn’t doing, and she urged the IIB and other groups to continue submitting their comments to the CFTC.

Read Commissioner Sommers’ remarks below.

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US CFTC “out of step” with other regulators-Sommers


Mon Mar 7, 2011 8:00pm GMT


* CFTC needs to quantify costs of its new rules – Sommers

* Swap execution rule goes beyond SEC, EU versions

* Position limit plan more extensive than EU proposal

By Roberta Rampton

WASHINGTON, March 7 (Reuters) – The U.S. futures regulator is going too far and too fast toward pushing swaps onto new trading platforms, one of its top officials said on Monday.

The Commodity Futures Trading Commission’s proposed rule on swap execution facilities, which is open for public comment until Tuesday, is inconsistent with proposals by the Securities and Exchange Commission and international regulators, said Jill Sommers, a CFTC commissioner.

“One of my primary concerns is that the CFTC is moving out of step in time, substance, or both with the SEC and the rest of the world in implementing trade execution requirements for standardized swaps,” Sommers said in a speech to the Institute of International Bankers.

The Dodd-Frank financial reform law requires more over-the-counter swaps to trade on exchanges or new swap execution facilities, or SEFs, to increase transparency in the formerly opaque market.

The CFTC has proposed that new SEFs send requests-for-quotes on trades to at least five swap dealers, while the SEC would allow a request to go to a single dealer, depending on the customer’s wishes.

The European Commission is still in the early stages of considering a proposal that would allow for single-dealer platforms, a “fundamentally different” model than the CFTC’s proposal.

“I support the more flexible approach being considered elsewhere,” said Sommers, a Republican commissioner who voted against the proposal when it was first unveiled.

Sommers said she hopes the CFTC will adopt a more flexible regulation. After the comment period ends, the agency will consider whether changes are needed, and commissioners will need to vote again to finalize the plan.

Sommers, who has objected to a number of rules proposed by the CFTC, also said the agency’s plan for position limits for energy, metals and agricultural commodities goes beyond what international regulators are considering.

The European Commission has proposed giving national regulators in the European Union the option of setting position limits, but may only require the limits for farm products.

A plan for ownership restrictions for clearinghouses and SEFs also go beyond European proposals, and “may do more harm than good,” Sommers said.

The CFTC needs to do a better job analyzing the costs and benefits of their proposed rules, Sommers said.

“The proposals we have issued thus far contain cursory, boilerplate cost-benefit analysis sections in which we have not attempted to quantify the costs,” she said.

“We owe the American public more than the absolute minimum,” she said.